Tata Steel Limited FPO is to open on Wednesday the 19th of January and close on Friday the 21st of January. The issue size is 5.7 cr shares and at the closing price of Rs 621.70 would translate into a size of approximately Rs 3500 crs.
The market capitalisation of the company is just over Rs 56,000 crs and this dilution in equity would be 5.79% post issue basis. The price band would be formally announced in the newspapers by way of public announcement on Tuesday morning, one day before the issue opens and on the morning of the anchor investor’s allotment if any.
The price would be at a marginal discount to the present price of Tata Steel and is expected to come at the top price band of Rs 610 or thereabouts. At this price there would be a discount of roughly 1.88% to the closing price of Friday the 14th of January.
It is important to see how Tata Steel prices have moved in the last month or so. The share price as on Friday the 10th December closed at Rs 618.10 with a gain of Rs 13.8 or 2.88% over the previous day’s close. The intraday high was Rs 629.95 and the intraday low was Rs 595. From here the share made an intraday high of Rs 714 on the 4th of January and the highest close was Rs 703 a day earlier on the 3rd of January. The share is on a fall thereafter and has given up all the gains of the previous month.
Steel company’s profits are under pressure and the same has been witnessed in the results of SAIL. Tata Steel has also informed investors “Tata Steel further expects its operating results for the third quarter to decline somewhat in comparison to the second quarter”. It expects net sales to be flat but face margin pressure on account of higher raw material prices.
If one were to compare share prices of the two other large players JSW Steel and SAIL in the same period of December to January, one finds that in the case of JSW Steel the price fell from Rs 1044 to close at Rs 969, a loss of Rs 75 or 7.18%. In the case of SAIL which has declared its results for the quarter ended December 2010, the loss has been steeper from Rs 176.60 to Rs 161.35.The net loss was Rs 15.25 or 8.63%. The inference being made is that results in the quarter have been poor and other steel companies like Tata Steel and JSW would also be similarly impacted like SAIL, though the degree could differ.
The broader markets are going through a tough time and the BSESENSEX has lost 831 points or 4.16% in the last week. Since the beginning of the New Year 2011, in the first fortnight the benchmark index has lost 1,649 points or 8.04%. These are not the best times to raise money and the fact that returns from IPO’s and FPO’s have virtually stopped could be a dampener to the issue.
Tata Steel has a road show on Monday in Mumbai and one would expect the company to make public the price band at this event to have a more meaningful discussion.
